Indonesia's retail sector remains one of the most promising in Asia due to the large population and growing middle class with higher purchasing power.

Indonesia's retail sector remains one of the most promising in Asia, on the back of its large population and growing middle class with higher household purchasing power and increasingly modern spending habits. Private consumption increased more than 5% in 2016 and was a main driver of economic growth.

However the private consumption outlook for 2017 is more subdued on the back of persisting poor performance in the mining and agricultural sectors. Inflation is also expected to increase to more than 5% in 2017 due to higher food prices, higher electricity tariffs and fees for vehicle registration. This will affect households´ discretionary spending for consumer durables.

However, retail business earnings are expected to grow again in 2017, due to the still positive economic outlook and lower interest rates. Growth in the retail sector will be largely seen in the mass grocery retailers and modern store-based retailers segments.

A number of retailers have indicated commitment for capital expenditure in 2017 to open new premises, especially to reach out to smaller cities and regions outside of Java. Those growth plans piggyback on the government's undertaking for infrastructure and logistics development in more remote regions this year.

The long-term outlook for the consumer durables retail sector remains positive amid structural reforms and increased spending on infrastructure by the current administration. Notably for the retail sector, the government has permitted up to 67% foreign ownership in shares of department stores with sales floor area of 400 square meters up to 2,000 square meters, as long as they are located in a mall.

The current average payment duration in the industry is 30-60 days. The number of protracted defaults is rather low, and non-payments are not expected to increase in the coming months.

Our underwriting stance for the industry is generally open. However, we assess buyers more prudently in case of lack of financial and other qualitative information, such as strong group backing.

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.